FX Daily Strategy: Asia, February 25th

The Australian CPI will be lively after the RBA's hawkish tilt. It is widely expected to remain above the 3% target range but we are wary of speculation it will run further hotter from there. What is more important is the trimmed mean CPI, where a high read will persuade market participant to speculate of another imminent hike coming. Thus, driving the Aussie higher on the release.

On the chart, the pair is leaning lower in consolidation below the .7100 level and see room for pullback to the .7000 level. Break here will see deeper pullback to retrace the November/February rally and see extension to strong support at the .6900 level and .6870, 38.2% Fibonacci level. Meanwhile, resistance at the .7100 level now expected to cap. Regaining this will ease the downside pressure and clear the way for retest of the .7147 high and see scope to further extend gains from the April 2025 low.

Iran authorities appear reluctant to meet the Trump administration’s demand to stop nuclear fuel production for potential weapons.  This increases the odds of a limited attack by the U.S. on Iran to 30-40% (Figure), which could occur as soon as this weekend. The most likely Iran counterattack would once again be designed to allow a path towards de-escalation and then better negotiations.  However, modest odds exist of Iran trying to close the Strait of Hormuz, which could spike oil prices up to USD100.